The keystone to an era of de facto global regulation is the establishment of a new global regulator, the Financial Stability Board, reconstituted from the Financial Stability Forum, the body of central banks and financial regulators into a stronger multilateral entity.

Federal Financial Analytics, a regulatory risk consultancy, said the new regulator does not have direct authority over home-country supervisors, but it will play a far stronger role than initially anticipated in the “supervisory colleges governing cross-border, systemic-risk firms.”

The FSB will also be able to make specific recommendations and “name and shame” participating nations that fail to adopt, implement and comply with its standards or the best practices of the IMF and the World Bank.

Karen Shaw Petrou, managing partner of Federal Financial Analytics, said: “It can’t tell the US what to do, but if we don’t do what it wants, sanctions will quickly follow that deny US firms access to critical markets. This augurs quick action on bank-like regulation for all US financial firms, especially any large enough to present systemic risk, even if Congress backs away from sweeping reform.”

Jerry Comizio, partner in the bank regulatory practice at New York-based law firm Paul Hastings, said the formation of the FSB was expected as the credit crisis has led to the acknowledgment of a need for greater cross-border oversight of financial services.

Comizio said: “The intriguing question is how that will be accomplished. Among the developed G20 countries, the US stands out like a sore thumb for not having a consolidated financial services home regulator and this is now on the front burner to be addressed.”

Federal Financial Analytics also said the US has made significant concessions to France and Germany with regard to regulating hedge funds, private equity firms and other “shadow” banks.

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The FSF also aimed closer to home by targeting compensation practices at large financial firms, cited as a factor that contributed to the financial crisis as bonuses were based on high short-term risk without regard to long-term risk.

The group has recommended a set of principles for large systemically important firms including adjusting pay for types of risk and time horizons; linking pay to the overall performance of the firm as well as the individual business and that the mix of cash, equity and other forms of compensation should be consistent with risk alignment.

The compensation report said: “Greater balance within the compensation system itself will reduce the burden on risk management systems and increase the likelihood they are effective.”

Ed Sautter, regulatory lawyer at Mayer Brown, said: “Everyone has to agree to the new strict rules on compensation. Everyone needs to follow this, otherwise the banks will imaginatively engage in regulatory arbitrage.”

Sautter added that the UK and the US would be more affected than countries like Japan, which traditionally have had a culture of conservative compensation packages. He said: “Certain jurisdictions will undergo cultural changes which will be greater than others.”

In addition, the communiqué included an agreement that the senior leadership of international financial institutions be appointed through an open, transparent, and merit-based selection process.

Harvard University professor of international political economy Dani Rodrik wrote on his blog that the provision “may mean that the era of the World Bank and the IMF being run by Americans and Europeans, respectively, is over. And good riddance.”

Rodrik added: “On the whole, the summit must be counted as a victory for the Europeans, who got what they wanted: a focus on new regulations and avoidance of any hint of real coordination (or targets) on fiscal stimulus.”

Along those lines, the communiqué said that hedge funds, particularly those that are “systemically significant,” will see more regulation.

In its response, the Alternative Investment Management Association said it was pleased with the G20’s move to support financial stability but reasserted that the root of the current crisis is the banking system and the hedge fund industry’s role in it was marginal.

“Of course, it is right that systemically significant institutions should be subject to oversight,” the AIMA said in a statement.

“We would, however, note the conclusions of Lord Turner in his recent Turner Review who pointed out that hedge fund leverage ‘is typically well below that of banks—about two to three on average,’ compared with levels of up to 50 times with some of the banks; and that ‘hedge funds in general are not today bank-like in their activities.’

"Although we agree that any entity that provides banking services should be regulated as a bank, the vast majority of hedge funds do not fall into this category.”

The association added that it had already supported the provision for large hedge fund managers to provide systemically significant information to their national regulators as part of the AIMA’s policy platform released in late February. It added that it welcomed the new Financial Stability Board much as it had worked with predecessor.

Randy Shain, who leads the due diligence team at risk management services provider FirstAdvantage, said he was pessimistic that hedge fund regulation would have an impact.

Shain said: “I feel strongly that regulation in this industry has not done what people think it will do. In and of itself it’s a good idea but it’s not a panacea.”

Richard Baker, chief executive of hedge fund industry trade body Managed Funds Association, said regulatory reform should strengthen the financial system without impeding the role of hedge funds to provide liquidity and disperse risk.

Baker said: “Hedge funds whose investors have been negatively impacted by the turmoil in the financial markets have a shared interest with other market participants and policy makers in reestablishing orderly stable markets.”

The G20 participants also addressed concerns about rating agencies, and affirmed a need to extend regulatory oversight and registration “to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.”

A spokesman for Standard & Poor’s said in an emailed statement to Financial News that it was broadly supportive of the G20’s global approach to regulatory reform.

He said: “We believe appropriate regulation of credit rating firms, and other market participants, will play an important role in rebuilding confidence and providing greater transparency into the capital markets.”

That view was shared by Fitch, which also said in a statement the agency “has long acknowledged the benefits to the capital markets of an enhanced regulatory framework for credit rating agencies.”

However, Sean Egan, president and co-founder of rating agency Egan-Jones whose clients are fiduciaries, hedge funds and the sell side rather than issuers, said the effort equates “trying to manage the unmanageable.” Egan said that an international effort won’t change a single thing and gives a false sense of security.

“It is a waste of time and money,” Egan said. “I don’t care how many codes of conducts they have or Chinese walls, the end results will be the same. If the agencies are paid by the issuers, there is a natural tendency for inflated ratings. “

Vincent Truglia, managing director at asset management firm NewOak Capital and former head of sovereign risk unit at Moody’s, echoed Egan's sentiment, saying said that the problem will not be solved by a code of conduct.

Truglia said: “It sounds good to people not familiar with rating agencies, but has no real effect on how they would function unless the code is significantly different than the ones already in place.”

The G-20 summit also declared that the era of secrecy in banking is closed and that tax havens are in its sights.

The communiqué avoided detailed proposals and has left the matter to the Paris-based Organization of Economic Cooperation and Development.

The communiqué also alluded to a list of uncooperative tax havens to be published by the OECD, which is expected to be released within the next few weeks.

Philip Marcovici, a partner at lawyers Baker & McKenzie, said: “The OECD has been making great strides in its global efforts to combat tax evasion, and those involved certainly have the necessary expertise and background to deal with issues around offshore financial centers.”

The extent of sanctions to be imposed on tax havens on the new OECD list also has yet to be decided.

Offshore centers like Singapore, Liechtenstein and Monaco have recently said they would sign up to OECD exchange of information arrangements in anticipation of tougher measures coming from the G20.

Another key constituency also appears ready to sign up—accountants—the foot soldiers who will carry out the reforms to come.

The Institute of Chartered Accountants in England and Wales said it welcomes the G20 communiqué’s push for higher accounting standards, set by supervisors and regulators, for valuation and provisioning.

Michael Izza, chief executive of the Institute, said: “International financial reporting standards epitomize the principles of the G20 summit. They are a real and practical example of a global approach to tackling global challenges.”